AT&T Expects DirecTV Deal to Cut TV Programming Costs by At Least 20%

AT&T shed more light on the cost synergies — and new revenue opportunities — that it expects to realize through its takeover of DirecTV, including shaving down programming costs by 20% or more.

The telco has said it expects to save $1.6 billion per year within three years after the closing of the DirecTV deal, with at least 40% of that realized by year two. Those estimates are “conservative,” the telco said in a filing Tuesday with the Securities and Exchange Commission.

According to AT&T, programming-cost reductions are the most significant part of the expected savings. Today, AT&T’s U-verse TV content costs represent approximately 60% of its subscriber video revenues. Following the DirecTV transaction — and the leverage that the satcaster’s 20.2 million U.S. subscribers affords AT&T — U-verse content costs will be reduced by approximately 20% or more compared with its previously forecast standalone content costs, AT&T said.

“The deal provides significantly greater scale in video, affording us the ability to offer programmers better value and therefore the opportunity for us to obtain correspondingly better per-subscriber content costs,” AT&T said in the filing.

AT&T had 5.7 million U-verse TV subscribers at the end of the first quarter of 2014, making it the fifth-biggest U.S. pay-TV provider.

In addition to cost savings, AT&T said it has big opportunities to cross-sell services with DirecTV.

With the deal, the combined company would be able to offer a pay-TV, broadband and mobile service bundle to at least 70 million customer locations, as well as a TV-and-wireless bundle to another 45 million U.S. consumers.

Furthermore, AT&T said, it will be able to use its 2,000-plus company-owned stores and 10,000 retail locations of the combined company’s resellers to market the new bundled services. Currently, about 50% of AT&T retail stores do not sell a pay-TV product.

The cost savings from the deal will let AT&T upgrade 2 million additional locations to 1-gigabit-per-second fiber-based broadband and expand its U-verse high-speed broadband footprint to an additional 13 million locations, the telco said.

And AT&T sees new revenue opportunities in the business market. With DirecTV, AT&T will be able to offer a “compelling video service” to hotels, restaurants and bars, real estate managers and developers and other commercial locations, bundled with the telco’s other services.

AT&T’s proposed $67 billion acquisition of DirecTV is pending regulatory approval. The companies have said they expect the approval process to take up to 12 months.

If 60% of AT&T’s costs for TV customers are programming expenditures, exactly how is it that cable companies “need” to raise rates when channel prices go up justified as “pay-tv is a break-even business”. It sounds like pay-TV is a high profit margin business, or AT&T can’t be bothered to be more efficient, as 40% of their income goes to their overhead?!?!?